Don’t Let Culture Kill Your Next Acquisition

Culture is key when it comes to completing a successful merger or acquisition. Culture integration has killed some of the biggest deals in history. And while it’s been recognized as an integral component of organizational effectiveness since the 1980s—McKinsey’s famous 7S Framework outlines four “soft” elements that need to be aligned—it’s still more talked about than understood, and more likely to be addressed abstractly than tackled in the trenches, where the effects are most keenly felt.

If you’re driving an acquisition, you have (or should have) a good idea of your goals, whether it’s eliminating a competitor or building a capability that’s complementary to your business.

Those goals—or some version of them—need to be understood and accepted throughout the organization, or you’ll have a problem on your hands. Why go through with the deal? If that question can’t be answered clearly, succinctly, and persuasively, people will begin to feel that their livelihood is being threatened, and they’ll switch to self-preservation mode. After that, all bets are off.

Of course, being clear about your goals is only the first step. Here are three other things you can do during different phases of a deal to prevent culture from derailing your efforts.

1. Address it Head-on During Planning

It’s not easy to assess a company’s culture from outside, but it’s imperative that you try. Some dichotomies are obvious: when a big corporate “elephant” acquires a smaller, nimbler “mouse,” operating styles will likely clash. Other questions to ask:

Are communication styles compatible? Are people in frequent or infrequent communication with one another? Are agreements written or verbal? Do people make proposals through short emails or detailed memoranda?

Are cultures and geographies compatible? Are the two companies in different regions, and if so, do enough people have experience navigating different cultures?

What drives strategy? If a financially driven company acquires an engineering driven firm, it may be difficult to sync approaches to product development.

Are strengths and weaknesses complementary? Examining both organizations SWOT analyses will give you a more realistic sense of what the combined companies will look like.

Cultural incompatibilities aren’t always insurmountable. But they won’t resolve on their own. Clear communication is crucial to success. A merger is like a marriage, and it takes time for both parties, particularly at the rank-and-file level, to learn to work together. In fact, some of the most successful deals owe their success to extensive cultural planning. During the merger of Disney and Pixar, explicit guidelines were drawn to protect Pixar’s creative culture—an important and notable step from a company whose own strong-willed identity was already the stuff of legend.

2. Communicate During Closing

To the extent that geography permits, everyone in the organization needs to hear the same message at the same time on closing day, in a way that’s genial and non-threatening. People already know what’s going on, so there’s no need to speak at length. Instead, keep your statements short and on-target, then open the floor for questions.

Here are some additional tips for an effective Closing meeting:

Structure the session as you would a town-hall meeting—and test your equipment beforehand if you’re broadcasting to remote locations!

Expect tough questions. Be prepared to address them honestly, directly, and succinctly.

Gentle humor helps, but be mindful of cultural issues. Smiling is common in the southern U.S., for example, but may be perceived as insincere in northern states.

Speak to the strengths of both organizations. Briefly describe the positive aspects of the combined entity and your vision for the future.

3. Schedule Face Time During Integration

Your integration should start with face-to-face meetings—for longer than you think—and continue with clear, frequent communication at a peer-to-peer, rank-and-file level to reassure and reduce anxiety.

I was brought on as an integration manager in a $4B acquisition by a northern European company of a long-term strategic vendor located in Southern California. One culture was systematic, hyper-prepared, literal, stubborn, and aggressively blunt. The other preferred to improvise and was non-confrontational, laid-back, and prone to euphemism. Conference calls routinely degenerated into shouting matches.

I began to bridge this gulf by sending my European staff to California for a two-week on-site visit so they could meet and work with their counterparts. In my experience, the standard one-week visit is simply not enough, because it involves too many rounds of introductory meetings. Only during week two do true work patterns and attitudes start to emerge.

“There’s no substitute for face-to-face interactions when you’re integrating two corporate cultures.”

It also helps for both sides to “break bread” with each other, go out for a beer after work, and generally start to build the personal relationships that are necessary for successful collaboration. Likewise, inviting key players, engineers, and middle managers from the acquisition to visit their new parent company helped anchor the bridge on the other side.

Now, nearly four years after the merger was completed, the company’s stock has risen by more than 90%.

Culture is Destiny

During a merger, it’s common to fixate on numbers: valuations, growth rates, and so on.

But it’s also worth keeping Peter Drucker’s advice in mind: “Culture eats strategy for breakfast.” Address it proactively, and you’ll reap the benefits. Ignore it, and you’ll end up being part of the worst number of all: the 66% to 80% of mergers that fail to add financial value, or worse, destroy it.